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EU’s “green deal”: investment and financial facilities for the states

Eugene Eteris, , LZA senior adviser, BC International Editor, Copenhagen, 17.01.2020.Print version
The “green transition” imposes numerous constraints for the EU states. Among other things, there are the EU institutions and the member states’ efforts to deliver on the European idea of the global first climate-neutral bloc by 2050. These efforts are facing numerous challenges, including complex financial issues. The EU multi-annual budget as well as the member states’ involvement shall provide adequate assistance…

In any strategy there are some main ingredients for transforming it into a success story: the narrative (in our case, the “green deal”, which is based on the EU leaders’ agreement on carbon neutrality by 2050), the instruments (necessary regulations and directives concerning new farming rules, use of pesticides, environment quality standards, fisheries, product safety, as well as fiscal, tax and social issues) and the financial resources.


In December 2019, the Commission presented the European Green Deal*), with the ambition of becoming the first climate-neutral bloc in the world by 2050. Europe's transition to a sustainable economy means significant investment efforts across all sectors: reaching the current 2030 climate and energy targets will require additional investments of €260 billion a year by 2030.


The success of the European Green Deal Investment Plan will depend on the engagement of all actors involved. It is vital that the member states and the European Parliament maintain the high ambition of the Commission proposal during the negotiations on the upcoming financial framework. Hence, a swift adoption of the proposal for a transition fund regulation will be crucial.


*) More on the “green deal” in the BC’s publications (see the list below +); the main reference in: https://ec.europa.eu/info/publications/communication-european-green-deal_en

 

The Commission will closely monitor and evaluate the progress on this transition path. As part of these efforts, every year the Commission will hold a Sustainable Investment Summit, involving all relevant stakeholders and it will continue to work for promoting and financing the transition. The Commission invites the member states’ investment community and authorities to make full use of the enabling regulatory conditions and ever-growing needs for sustainable investments, taking an active role in identifying and promoting such investments.

 


Main EGDIP’s objectives

According to the Commission’s proposals, the EGDIP has three main objectives:

a) increasing funding for “green transition” and mobilizing at least €1 trillion to support sustainable investments over the next decade through the EU budget and associated instruments, in particular InvestEU;

b) creating “an enabling framework” for private investors and the public sector to facilitate sustainable investments; and

c) providing support to public administrations and project promoters in identifying, structuring and executing sustainable projects.


The European Green Deal Investment Plan, EGDIP (often called Sustainable Europe Investment Plan, SEIP), is the EU’s “green deal” investment pillar. The ultimate goal is to mobilize at least €1 trillion in sustainable investments over the next decade. Part of the plan, the Just Transition Mechanism, will be targeted to a fair and just green transition. The latter is expected to mobilize at least €100 billion in investments during 2021-27 to support workers and citizens in EU’s regions most affected by the “green transition” process (see the table below).  


More on the “green deal” investment plan in: https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_24



 

As soon as the EU budget alone cannot be sufficient and enough in tackle climate change and meeting “green transition” measures, the investment needs will be also covered by the member states’ budgets and active private sector.


Source: https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_24


EIB’s loan facilities

The EIB’s loan facility will target mostly those EU regions that would be most affected by the green transition. The exact geographical coverage will be the same as under the InvestEU “just transition scheme”, i.e. supporting projects in those regions which have approved transition plans as well as the projects directly benefiting such regions.

Investment facilities will cover energy supply and transport infrastructure, district heating networks, energy efficiency measures including renovation of buildings and other spheres of “social infrastructure”, to name a few.


The support under the public sector loan facility benefits projects which do not generate revenue and would otherwise not get financed. It will therefore be complementary to the products offered by the InvestEU dedicated just transition scheme.


The EIB will contribute to a public sector loan facility to support national and regional authorities with low-interest loans. With the contribution from the EU budget of €1.5 billion and the EIB lending of €10 billion at its own risk, the public sector loan facility could mobilise about €25-30 billion of public investments during 2021-27. It will be used for investments in energy and transport infrastructure, district heating networks, renovation and insulation of buildings, etc. The Commission expects to finalise a draft for setting up a new public sector loan facility in March 2020.


Other EU financial instruments:”just transition”

The transition mechanism inspired and financed by the EU institutions will consist of three main sources of financing:

1)   A transition fund, with about €7.5 billion from the EU funds (expected to come from the additional part of the next long-term EU budget). In order to qualify for the fund’s support, the member states, in consultation with the Commission, have to identify the eligible “transitional territories” and economic sectors. These resources have to be “coordinated” with the financial support from the European Regional Development Fund and the European Social Fund Plus. In sum, this will provide about €30-50 billion of funding guarantees, which will mobilise even more investments. The fund will primarily provide grants to regions in the states to support, for example, vocational training for workers to develop skills and competences for the sustainable growth market, perspective SMEs, start-ups and incubators to create new economic opportunities in these regions. It will also support investments in the clean energy transition, for example in energy efficiency and transportation.

Reference: https://ec.europa.eu/commission/presscorner/detail/en/fs_20_39

 

2)   A dedicated transition scheme under InvestEU to mobilise up to €45 billion of investments. It will seek to attract private investments, including in sustainable energy and transport that benefit those regions and help their economies find new sources of growth. 

 

3)   A public sector loan facility with the European Investment Bank backed by the EU budget to mobilise between €25 and €30 billion of investments. It will be used for loans to the public sector, e.g. for investments in district heating networks and renovation of buildings. These two directions are of paramount importance for the housing and construction market in the Baltic States. The Commission will come with a legislative proposal to set this up in March 2020.

 


Advantages for the Baltic States

However, these “transition mechanism” concept is more than funding and financial resources: relying on a transition platform, the Commission will be providing advises and technical assistance to the EU states and investors and make sure the affected communities, local authorities, social partners and non-governmental organisations are involved.


Thus, the transition mechanism will include a strong governance framework centered on regional and territorial “green transition” plans.


In the “transition mechanism”, the following advantages are expected for the member states: - supporting transition to low-carbon and climate-resilient activities; - creating new jobs in the green economy’s sectors; - investing in public and private sustainable transport; - providing technical assistance in sustainability; - investing in renewable energy sources; - improving digital connectivity; - providing affordable loans to local public authorities; - improving energy infrastructure, including district heating and transportation networks.


More in the Commission Communication on “green deal” (Annex on the road map and key actions): https://ec.europa.eu/info/sites/info/files/european-green-deal-communication-annex-roadmap_en.pdf.


General information in the following web-links:

- MEMO: The European Green Deal Investment Plan and the Just Transition Mechanism explained; = Factsheets: Investing in a Climate-Neutral and Circular Economy; The Just Transition Mechanism: Making sure no one is left behind, and EU-funded projects to green the economy;

- Commission Communication on the Sustainable Europe Investment Plan;

- Proposal for a regulation establishing the Just Transition Fund;

- Amendments to the Common Provisions Regulation;

- The European Green Deal.

 

+) BC’s list of publications on “green deal”:

- Green Deals’ final approval: great days for Europe. 13.12.2019. In: http://www.baltic-course.com/eng2/modern_eu/?doc=153069 and http://www.baltic-course.com/eng2/modern_eu/?doc=153093;

- Energy efficiency issues in the construction sector. 02.01.2020. In: http://www.baltic-course.com/eng2/modern_eu/?doc=153285;

- Energy policy and “green deal”: the EU and Baltic’s perspectives. 06.12.2019. In:
http://www.baltic-course.com/eng2/modern_eu/?doc=152950;  

- “Green financing”: creating durable, effective and sustainable solution. 19.12.2019. In:

http://www.baltic-course.com/eng2/modern_eu/?doc=153170

 

 

 

 






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